===============================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                      -----------------------------------
                                   FORM 10-Q

          X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         ---
                        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

                                       OR

             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         ---
                        SECURITIES EXCHANGE ACT OF 1934

               For the Transition Period from           to
                                              ---------    ---------

                       COMMISSION FILE NUMBER:  1-15135

                             CHANDLER (U.S.A.), INC.
             (Exact name of registrant as specified in its charter)

             OKLAHOMA                             73-1325906
  (State or other jurisdiction of    (I.R.S. Employer Identification No.)
   incorporation or organization)

                  1010 MANVEL AVENUE, CHANDLER, OKLAHOMA 74834
              (Address of principal executive offices and zip code)

    Registrant's telephone number, including area code:  (405) 258-0804

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  YES  X   NO
                                                    ---     ---

  Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).  YES      NO
                                                 ---     ---

   Indicate by check mark whether the registrant is a large accelerated filer,
 an accelerated filer, a non-accelerated filer, or a smaller reporting
 company.  See the definitions of "large accelerated filer," "accelerated
 filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  	                     Accelerated filer
                         --                                           --
Non-accelerated filer  X  (Do not check if a smaller reporting company)
                      ---
   Smaller reporting company
                              --

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).    YES     NO  X
                                                   ---    ---

     The number of common shares, $1.00 par value, of the registrant
outstanding on July 31, 2009 was 2,484, which are owned by Chandler
Insurance Company, Ltd.

===============================================================================

<PAGE>
                                                                      Page i

                            CHANDLER (U.S.A.), INC.

                                     INDEX
                                     -----
PART I - FINANCIAL INFORMATION
------------------------------

ITEM 1.  FINANCIAL STATEMENTS:
------------------------------
Consolidated Balance Sheets as of June 30, 2009 (unaudited)
  and December 31, 2008 .....................................................1

Consolidated Statements of Operations for the three months
  ended June 30, 2009 and 2008 (unaudited) ..................................2

Consolidated Statements of Operations for the six months
  ended June 30, 2009 and 2008 (unaudited) ..................................3

Consolidated Statements of Comprehensive Income for the three
  months ended June 30, 2009 and 2008 (unaudited) ...........................4

Consolidated Statements of Comprehensive Income for the six
  months ended June 30, 2009 and 2008 (unaudited) ...........................5

Consolidated Statements of Cash Flows for the six months
  ended June 30, 2009 and 2008 (unaudited) ..................................6

Notes to Interim Consolidated Financial Statements (unaudited) ..............7

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS .............................................16
         ---------------------

ITEM 4T. CONTROLS AND PROCEDURES ...........................................21
--------------------------------

PART II - OTHER INFORMATION
---------------------------

Item 1.    Legal Proceedings ...............................................22

Item 1A.   Risk Factors ....................................................22

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds .....22

Item 3.    Defaults Upon Senior Securities .................................22

Item 4.    Submission of Matters to a Vote of Security Holders .............22

Item 5.    Other Information ...............................................22

Item 6.    Exhibits ........................................................22

Signatures .................................................................23

<PAGE>
                                                                      PAGE 1

                           CHANDLER (U.S.A.), INC.
                         CONSOLIDATED BALANCE SHEETS
                 (Amounts in thousands except share amounts)

<TABLE>
<CAPTION>

                                                                                          June 30,     December 31,
                                                                                            2009           2008
                                                                                        ------------- --------------
                                                                                         (Unaudited)
<S>                                                                                     <C>           <C>
ASSETS
Investments
 Fixed maturities available for sale, at fair value
  Restricted (amortized cost $39,943 and $34,243 in 2009 and 2008, respectively) ...... $     40,185  $      35,397
  Unrestricted (amortized cost $64,289 and $40,771 in 2009 and 2008, respectively) ....       64,517         41,699
 Equity securities at fair value (cost $0 in 2009 and 2008) ...........................           76             76
 Short-term investments at fair value (amortized cost $1,330 and $5,853
  in 2009 and 2008, respectively) .....................................................        1,330          5,865
                                                                                        ------------- --------------
  Total investments ...................................................................      106,108         83,037

Cash and cash equivalents ($184 and $118 restricted in 2009 and 2008, respectively) ...        6,798         20,636
Accrued investment income .............................................................        1,273          1,018
Premiums receivable, less allowance for non-collection of $172 and $138 at
 2009 and 2008, respectively ..........................................................       22,220         26,405
Reinsurance recoverable on paid losses ................................................          388            423
Reinsurance recoverable on unpaid losses, less allowance for
 non-collection of $329 and $231 at 2009 and 2008, respectively .......................       35,929         32,492
Reinsurance recoverable on unpaid losses from related parties .........................       22,143         19,899
Prepaid reinsurance premiums ..........................................................        3,196          2,882
Prepaid reinsurance premiums to related parties .......................................       11,929         12,203
Deferred policy acquisition costs .....................................................        1,325          1,304
Property and equipment, net ...........................................................        7,500          7,849
Amounts due from related parties ......................................................       12,600         11,869
State insurance licenses, net .........................................................        3,745          3,745
Other assets ..........................................................................       11,210         10,885
                                                                                        ------------- --------------
Total assets .......................................................................... $    246,364  $     234,647
                                                                                        ============= ==============

LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
 Unpaid losses and loss adjustment expenses ........................................... $    110,171  $     101,459
 Unearned premiums ....................................................................       43,130         43,725
 Policyholder deposits ................................................................       10,277          7,820
 Accrued taxes and other payables .....................................................        7,401          6,017
 Premiums payable .....................................................................        2,081          2,440
 Premiums payable to related parties ..................................................           17            222
 Senior debentures ....................................................................        6,979          6,979
 Junior subordinated debentures issued to affiliated trusts ...........................       20,620         20,620
                                                                                        ------------- --------------
  Total liabilities ...................................................................      200,676        189,282
                                                                                        ------------- --------------

Shareholder's equity
 Common stock, $1.00 par value, 50,000 shares authorized;
  2,484 shares issued and outstanding .................................................            2              2
 Paid-in surplus ......................................................................       60,584         60,584
 Accumulated deficit ..................................................................      (15,258)       (16,654)
 Accumulated other comprehensive income:
 Unrealized gain on investments available for sale, net of deferred income taxes ......          360          1,433
                                                                                        ------------- --------------
  Total shareholder's equity ..........................................................       45,688         45,365
                                                                                        ------------- --------------
Total liabilities and shareholder's equity ............................................ $    246,364  $     234,647
                                                                                        ============= ==============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                      PAGE 2

                            CHANDLER (U.S.A.), INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>


                                                                  Three months ended June 30,
                                                                 -----------------------------
                                                                     2009             2008
                                                                 ------------     ------------
<S>                                                              <C>              <C>
Premiums and other revenues
  Direct premiums written and assumed .......................... $    21,034      $    20,191
  Reinsurance premiums ceded ...................................      (2,836)          (2,095)
  Reinsurance premiums ceded to related parties ................      (5,398)          (5,398)
                                                                 ------------     ------------
    Net premiums written and assumed ...........................      12,800           12,698
  Decrease in unearned premiums ................................       1,409            2,545
                                                                 ------------     ------------

    Net premiums earned ........................................      14,209           15,243

Investment income, net .........................................         780              847
Interest income, net from related parties ......................         109              158
Realized investment gains, net .................................         805                4
Other income ...................................................         332              416
                                                                 ------------     ------------

  Total premiums and other revenues ............................      16,235           16,668
                                                                 ------------     ------------

Operating costs and expenses
  Losses and loss adjustment expenses, net of amounts
    ceded to related parties of $4,700 and $3,576 in
    2009 and 2008, respectively ................................       9,500            8,380
  Policy acquisition costs, net of ceding commissions
    received from related parties of $2,052 in
    2009 and 2008, respectively ................................       2,878            3,124
  General and administrative expenses ..........................       2,719            3,119
  Interest expense .............................................         595              627
                                                                 ------------     ------------

    Total operating costs and expenses .........................      15,692           15,250
                                                                 ------------     ------------

Income before income taxes .....................................         543            1,418
Federal income tax provision ...................................        (218)            (568)
                                                                 ------------     ------------

  Net income ................................................... $       325      $       850
                                                                 ============     ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                     PAGE 3


                             CHANDLER (U.S.A.), INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (Unaudited)
                              (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                  Six months ended June 30,
                                                              --------------------------------
                                                                  2009                2008
                                                              -------------       ------------
<S>                                                           <C>                 <C>
Premiums and other revenues
  Direct premiums written and assumed ....................... $     45,888        $    50,394
  Reinsurance premiums ceded ................................       (5,378)            (4,819)
  Reinsurance premiums ceded to related parties .............      (12,068)           (13,603)
                                                              -------------       ------------

    Net premiums written and assumed ........................       28,442             31,972
  Decrease in unearned premiums .............................          636                781
                                                              -------------       ------------

    Net premiums earned .....................................       29,078             32,753

Investment income, net ......................................        1,541              1,737
Interest income, net from related parties ...................          215                346
Realized investment gains, net ..............................        1,189                  4
Other income ................................................          775                828
                                                              -------------       ------------

  Total premiums and other revenues .........................       32,798             35,668
                                                              -------------       ------------

Operating costs and expenses
  Losses and loss adjustment expenses, net of amounts
    ceded to related parties of $8,225 and $7,631 in
    2009 and 2008, respectively .............................       17,762             19,316
  Policy acquisition costs, net of ceding commissions
    received from related parties of $4,588 and $5,172 in
    2009 and 2008, respectively .............................        5,794              6,367
  General and administrative expenses .......................        5,824              6,279
  Interest expense ..........................................        1,193              1,279
                                                              -------------       ------------

    Total operating costs and expenses ......................       30,573             33,241
                                                              -------------       ------------

Income before income taxes ..................................        2,225              2,427
Federal income tax provision ................................         (829)              (961)
                                                              -------------       ------------

  Net income ................................................ $      1,396        $     1,466
                                                              =============       ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                     PAGE 4


                             CHANDLER (U.S.A.), INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                    (Unaudited)
                              (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                Three months ended June 30,
                                                              --------------------------------
                                                                  2009                2008
                                                              -------------       ------------
<S>                                                           <C>                 <C>

Net income .................................................. $        325        $       850
                                                              -------------       ------------

Other comprehensive loss, before income tax:
  Unrealized losses on securities:
    Unrealized holding losses arising during period .........         (158)            (1,579)
    Less:  Reclassification adjustment for gains included in
      net income ............................................         (805)                (4)
                                                              -------------       ------------
Other comprehensive loss, before income tax .................         (963)            (1,583)
Income tax benefit related to items of other
  comprehensive loss ........................................          327                538
                                                              -------------       ------------
Other comprehensive loss, net of income tax .................         (636)            (1,045)
                                                              -------------       ------------

Comprehensive loss .......................................... $       (311)       $      (195)
                                                              =============       ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                     PAGE 5


                             CHANDLER (U.S.A.), INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                    (Unaudited)
                              (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                 Six months ended June 30,
                                                              -------------------------------
                                                                  2009               2008
                                                              ------------       ------------
<S>                                                           <C>                <C>
Net income .................................................. $     1,396        $     1,466
                                                              ------------       ------------

Other comprehensive loss, before income tax:
  Unrealized losses on securities:
    Unrealized holding losses arising during period .........        (436)              (311)
    Less:  Reclassification adjustment for gains included in
      net income ............................................      (1,189)                (4)
                                                              ------------       ------------
Other comprehensive loss, before income tax .................      (1,625)              (315)
Income tax benefit related to items of other
  comprehensive loss ........................................         552                107
                                                              ------------       ------------
Other comprehensive loss, net of income tax .................      (1,073)              (208)
                                                              ------------       ------------

Comprehensive income ........................................ $       323        $     1,258
                                                              ============       ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                     PAGE 6

                             CHANDLER (U.S.A.), INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                 Six months ended June 30,
                                                                              ------------------------------
                                                                                  2009              2008
                                                                              ------------      ------------
<S>                                                                           <C>               <C>

OPERATING ACTIVITIES
Net income .................................................................. $     1,396       $     1,466
  Add (deduct):
  Adjustments to reconcile net income to cash provided by operating activities:
    Realized investment gains, net ..........................................      (1,189)               (4)
    Net (gains) losses on sale of property and equipment ....................          25                (4)
    Amortization and depreciation ...........................................         867               749
    Provision for non-collection of premiums ................................          30                25
    Provision for non-collection of reinsurance recoverables ................         155               139
    Provision for impairment of investment ..................................          20                 -
    Net change in non-cash balances relating to operating activities:
      Accrued investment income .............................................        (255)             (168)
      Premiums receivable ...................................................       4,155             1,257
      Reinsurance recoverable on paid losses ................................         (23)              (74)
      Reinsurance recoverable on unpaid losses ..............................      (3,534)           (2,628)
      Reinsurance recoverable on unpaid losses from related parties .........      (2,244)           (1,664)
      Prepaid reinsurance premiums ..........................................        (314)               33
      Prepaid reinsurance premiums to related parties .......................         274               334
      Deferred policy acquisition costs .....................................         (21)              (80)
      Other assets ..........................................................         178               490
      Unpaid losses and loss adjustment expenses ............................       8,712             7,560
      Unearned premiums .....................................................        (595)           (1,148)
      Policyholder deposits .................................................       2,457               316
      Accrued taxes and other payables ......................................       1,384               376
      Premiums payable ......................................................        (359)             (762)
      Premiums payable to related parties ...................................        (205)             (142)
                                                                              ------------      ------------
    Cash provided by operating activities ...................................      10,914             6,071
                                                                              ------------      ------------

INVESTING ACTIVITIES
  Short-term investments:
    Purchases ...............................................................        (380)             (665)
    Maturities ..............................................................       4,900               950
  Unrestricted fixed maturities available for sale:
    Purchases ...............................................................     (53,773)          (22,412)
    Sales ...................................................................      20,629               270
    Maturities ..............................................................       4,715             6,029
  Cost of property and equipment purchased ..................................        (131)             (325)
  Proceeds from sale of property and equipment ..............................          19                42
                                                                              ------------      ------------
    Cash applied to investing activities ....................................     (24,021)          (16,111)
                                                                              ------------      ------------

FINANCING ACTIVITIES
  Payments and loans from related parties ...................................         889             1,025
  Payments and loans to related parties .....................................      (1,620)           (1,548)
                                                                              ------------      ------------
    Cash applied to financing activities ....................................        (731)             (523)
                                                                              ------------      ------------

Decrease in cash and cash equivalents during the period .....................     (13,838)          (10,563)

Cash and cash equivalents at beginning of period ............................      20,636            32,956
                                                                              ------------      ------------
Cash and cash equivalents at end of period .................................. $     6,798       $    22,393
                                                                              ============      ============

</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

<PAGE>
                                                                     PAGE 7


                             CHANDLER (U.S.A.), INC.

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                     SIX MONTHS ENDED JUNE 30, 2009 AND 2008
                                   (Unaudited)

NOTE 1.  BASIS OF PRESENTATION


     The accompanying unaudited consolidated financial statements of Chandler
(U.S.A.), Inc. ("Chandler USA") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
They do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements.  However,
except as disclosed herein, there have been no material changes in the
information included in Chandler USA's Annual Report on Form 10-K for the
year ended December 31, 2008.  In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included.  The results of operations for the three
and six month periods ended June 30, 2009 are not necessarily indicative of
the results that may be expected for the year.  Chandler USA has evaluated
subsequent events for potential recognition or disclosure through August 12,
2009, the issuance date of Chandler USA's consolidated financial statements.

     The consolidated financial statements include the accounts of Chandler
USA and all wholly owned subsidiaries that meet consolidation requirements
including National American Insurance Company ("NAICO") and Chandler
Insurance Managers, Inc. ("CIMI").

NOTE 2.  SEGMENT INFORMATION

     Chandler USA has two reportable operating segments:  property and
casualty insurance and agency.  The segments are managed separately due to
the differences in the nature of the insurance products and services sold.
The following table presents a summary of Chandler USA's operating segments
for the three and six month periods ended June 30, 2009 and 2008:

<TABLE>
<CAPTION>
                                                  PROPERTY
                                                    AND
                                                  CASUALTY                   INTERSEGMENT    REPORTED
                                                  INSURANCE       AGENCY     ELIMINATIONS    BALANCES
                                                 ------------  ------------  ------------  ------------
                                                                     (In thousands)
<S>                                              <C>           <C>           <C>           <C>
THREE MONTHS ENDED JUNE 30, 2009
Revenues from external customers (1) ........... $    14,319   $       222   $         -   $    14,541
Intersegment revenues ..........................          42           602          (644)            -
Segment profit (loss) before income taxes (2) ..         598           (55)            -           543

THREE MONTHS ENDED JUNE 30, 2008
Revenues from external customers (1) ........... $    15,395   $       264   $         -   $    15,659
Intersegment revenues ..........................          12           724          (736)            -
Segment profit (loss) before income taxes (2) ..       1,253           165             -         1,418

SIX MONTHS ENDED JUNE 30, 2009
Revenues from external customers (1) ........... $    29,333   $       520   $         -   $    29,853
Intersegment revenues ..........................          71         1,405        (1,476)            -
Segment profit (loss) before income taxes (2) ..       2,042           183             -         2,225
Segment assets .................................     244,795         8,881        (7,312)      246,364

SIX MONTHS ENDED JUNE 30, 2008
Revenues from external customers (1) ........... $    32,991   $       590   $         -   $    33,581
Intersegment revenues ..........................          23         1,720        (1,743)            -
Segment profit (loss) before income taxes (2) ..       1,759           668             -         2,427
Segment assets .................................     240,707         8,327        (7,209)      241,825

----------------------------------------------------

(1)  Consists of net premiums earned and other income.
(2)  Includes net realized investment gains.

</TABLE>

<PAGE>
                                                                     PAGE 8

     Net premiums earned and losses and loss adjustment expenses within the
property and casualty insurance segment can be identified to Chandler USA
designated insurance programs and to each line of insurance.  Chandler USA's
chief operating decision makers review net premiums earned and losses and
loss adjustment expenses in assessing the performance of the insurance
programs and lines of business.  In addition, Chandler USA's chief operating
decision makers consider many other factors such as the lines of business
offered within an insurance program and the states in which the insurance
programs are offered.  Certain discrete financial information is not readily
available by insurance programs or lines of insurance, including assets,
interest income, and investment gains or losses, allocated to each insurance
program or line of insurance.  Chandler USA does not consider its insurance
programs or lines of insurance to be reportable segments, however, the
following supplemental information pertaining to each insurance program's net
premiums earned and losses and loss adjustment expenses is presented by
insurance program and line of insurance for the property and casualty
insurance segment.

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED JUNE 30,  SIX MONTHS ENDED JUNE 30,
                                          ---------------------------  -------------------------
                                              2009           2008         2009          2008
                                          ------------   ------------  ----------   ------------
                                                              (In thousands)
  <S>                                     <C>            <C>           <C>          <C>
INSURANCE PROGRAM:
-----------------------------------------
  NET PREMIUMS EARNED
  Standard lines ........................ $    13,434    $    14,490   $  27,605    $    31,226
  Political subdivisions ................         637            698       1,281          1,398
  Other .................................         138             55         192            129
                                          ------------   ------------  ----------   ------------
  TOTAL ................................. $    14,209    $    15,243   $  29,078    $    32,753
                                          ============   ============  ==========   ============

  LOSSES AND LOSS ADJUSTMENT EXPENSES
  Standard lines ........................ $     8,266    $     7,749   $  15,969    $    18,178
  Political subdivisions ................         762            419       1,170            855
  Other .................................         472            212         623            283
                                          ------------   ------------  ----------   ------------
  TOTAL ................................. $     9,500    $     8,380   $  17,762    $    19,316
                                          ============   ============  ==========   ============

                                          THREE MONTHS ENDED JUNE 30,  SIX MONTHS ENDED JUNE 30,
                                          ---------------------------  -------------------------
                                              2009           2008         2009          2008
                                          ------------   ------------  ----------   ------------
                                                              (In thousands)
  <S>                                     <C>            <C>           <C>          <C>
LINES OF INSURANCE:
-----------------------------------------
  NET PREMIUMS EARNED
  Automobile liability .................. $     4,403    $     4,750   $   9,153    $    11,816
  Workers compensation ..................       5,152          5,130      10,283         10,061
  Other liability .......................       3,258          3,364       6,621          8,397
  Automobile physical damage ............       1,333          1,603       2,936          2,489
  Other .................................          63            396          85            (10)
                                          ------------   ------------  ----------   ------------
  TOTAL ................................. $    14,209    $    15,243   $  29,078    $    32,753
                                          ============   ============  ==========   ============
  LOSSES AND LOSS ADJUSTMENT EXPENSES
  Automobile liability .................. $     1,099    $     2,806   $   4,873    $     7,955
  Workers compensation ..................       6,307          3,051       8,715          6,554
  Other liability .......................       1,472          1,079       2,878          2,626
  Automobile physical damage ............         714          1,260       1,390          1,975
  Other .................................         (92)           184         (94)           206
                                          ------------   ------------  ----------   ------------
  TOTAL ................................. $     9,500    $     8,380   $  17,762    $    19,316
                                          ============   ============  ==========   ============

</TABLE>

<PAGE>
                                                                     PAGE 9

NOTE 3.  COMMITMENTS AND CONTINGENCIES

     During March 2001, Chandler USA entered into a $3.8 million sale and
leaseback transaction for certain owned equipment for three years.  During
March 2004, the lease was extended for three years and during March 2007,
the lease was extended for an additional three years with monthly rental
installments equal to the sum of (i) $13,834 plus (ii) interest on the unpaid
lease balance at 1% over JP Morgan Chase Bank prime which was 4.25% at June
30, 2009.  Chandler USA has the option to repurchase the equipment at the
end of the lease for approximately $1.9 million (the "Balloon Payment"), or
may elect to have the lessor sell the equipment.  If the election to sell the
equipment is made, Chandler USA would retain any proceeds exceeding the
Balloon Payment.  If the proceeds were less than the Balloon Payment,
Chandler USA would be required to pay the difference between the proceeds and
the Balloon Payment, not to exceed approximately $1.5 million.

     Chandler USA has guaranteed the obligations of Chandler Capital Trust I
and Chandler Capital Trust II (the "Capital Trusts") with respect to the
trust preferred securities they have outstanding.  The Capital Trusts
distribute the interest received from Chandler USA on the junior subordinated
debentures to the holders of the trust preferred securities to fulfill their
obligations with respect to such securities.  The Capital Trusts are wholly
owned non-consolidated subsidiaries of Chandler USA.  Chandler USA guarantees
payment of distributions and the redemption price of the trust preferred
securities until the securities are redeemed in full.  The total redemption
price of the trust preferred securities is $20.0 million.

NOTE 4.  LITIGATION

     In October 1999, NAICO provided surety bonds for Gulsby Engineering,
Inc. ("Gulsby") in connection with contracts between Gulf Liquids New River
Project, LLC ("Gulf Liquids") and Gulsby for the construction of two gas
processing plants in Louisiana. During 2001, Gulsby became unable to pay
various vendors resulting in payments to vendors by NAICO totaling $20,182,499.
In August 2001, NAICO filed suit in federal court in Louisiana alleging that
Gulf Liquids had breached its obligations under the bonds by materially
altering certain contracts and that, as a result, NAICO was exonerated on the
bonds and should recover the amounts paid to vendors. In the fall of 2001,
Gulsby and Bay Limited, another contractor with whom Gulsby had entered into
a joint venture for the construction of other gas processing plants for Gulf
Liquids, filed lawsuits relating to those plants in Houston, Texas. Gulf
Liquids filed original actions and counterclaims. NAICO intervened in the
Texas lawsuits and, in addition, sued Williams Energy Marketing and Trading
(which later became Williams Power Company, Inc.) ("Williams") alleging
fraud, breach of contract, tortious interference with contractual relations,
conspiracy and alter ego. These claims were asserted against both Gulf
Liquids and Williams. Gulf Liquids asserted counterclaims alleging breach of
contract against NAICO and requesting contractual and statutory damages
ranging from $40 million to $80 million. The cases were consolidated for
trial in the 215th Judicial District Court in Harris County, Texas.

     The trial in the Harris County cases began in late April 2006, and
concluded August 1, 2006.  The jury found in favor of NAICO and Gulsby, Bay
Limited and the joint venture between Gulsby and Bay Limited ("Gulsby-Bay
Plant Partners") on all counts and fixed damages against Gulf Liquids and
Williams totaling $402,568,089.53. The damages determined by the jury
included a total of $325 million in punitive damages. Among other findings,
the jury found:

1.  Williams tortiously interfered with NAICO's contractual relationship with
    Gulsby and Gulf Liquids; and
2.  Williams fraudulently induced NAICO to issue the surety bonds; and
3.  Williams defrauded NAICO after the bonds were issued; and
4.  Williams' actions were malicious; and
5.  Gulf Liquids fraudulently induced NAICO to issue the surety bonds; and
6.  Gulf Liquids breached its obligations to NAICO under the bonds; and
7.  Williams is responsible for the claims against Gulf Liquids because Gulf
    Liquids is the alter ego of Williams; and
8.  There were material alterations (cardinal changes) to the contracts
    NAICO bonded.

     The amounts the jury found owing to NAICO included $20,182,499 in actual
damages, against both Gulf Liquids and Williams, $20 million in punitive
damages against Gulf Liquids, and $50 million in punitive damages against
Williams. The verdicts in favor of Gulsby included $20,941,436 in actual
damages against both Gulf Liquids and Williams, $25 million in punitive
damages against Gulf Liquids and $60 million in punitive damages against
Williams.

     NAICO is subrogated to any recovery by Gulsby to the extent of NAICO's
losses on the bonds including loss adjustment expenses with interest from the
date the losses and loss expenses were paid.

<PAGE>
                                                                     PAGE 10

     A significant amount of NAICO's losses on the surety bonds were ceded
to various reinsurers and NAICO will be required to reimburse these
reinsurers in accordance with the agreements between NAICO and the reinsurers.

     On January 28, 2008, the court entered a final judgment denying Gulf
Liquid's claims against NAICO and Gulsby, denying all of NAICO's claims
against Gulf Liquids and Williams, and entering judgment for Gulsby against
Gulf Liquids for $15,651,927 plus interest at 7.25% compounded annually from
January 28, 2008 until paid.  The court also ordered Gulf Liquids to pay
Gulsby's taxable court costs, estimated at $100,000.  Gulf Liquids has
appealed the judgment entered in favor of Gulsby and the denial of its claims
against NAICO and Gulsby.  NAICO has appealed the trial court's denial of its
claims against Gulf Liquids and Williams and seeks entry of judgment upon the
jury verdicts for the amounts the jury found should be awarded to NAICO.
Gulsby has also appealed the trial court's final judgment, contending that
judgment should be entered in its favor against Gulf Liquids and Williams in
accordance with the jury verdicts.  The recoverable amounts deducted from
Chandler USA's net liability for losses and loss adjustment expenses related
to this litigation were approximately $10.1 million at June 30, 2009 and
December 31, 2008.

NOTE 5.  NEW ACCOUNTING STANDARDS

     The Financial Accounting Standards Board ("FASB") periodically issues
new accounting standards in a continuing effort to improve standards of
financial accounting and reporting.  Chandler USA has reviewed the recently
issued pronouncements and concluded that the following new accounting
standards are applicable to Chandler USA.

     In March 2008, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 161, "Disclosures about Derivative Instruments and
Hedging Activities - an amendment of FASB Statement No. 133."  SFAS No.
161 changes the disclosure requirements for derivative instruments and
hedging activities.  Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations, and (c) how derivative instruments
and related hedged items affect an entity's financial position, financial
performance and cash flows.  Chandler USA has adopted SFAS No. 161 as of
January 1, 2009.  The adoption of SFAS No. 161 did not have a material
impact on its consolidated financial statements.

     In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial
Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60."
SFAS No. 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default when there is evidence that credit
deterioration has occurred in an insured financial obligation.  It also
clarifies how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement to be used to account for premium
revenue and claim liabilities, and requires expanded disclosures about
financial guarantee insurance contracts.  Chandler USA does not issue
financial guarantee insurance contracts.  Chandler USA has adopted the SFAS
No. 163 as of January 1, 2009.  The adoption of SFAS No. 163 did not have any
impact on its consolidated financial statements.

     In April 2009, the FASB issued FASB Staff Position ("FSP") No. FAS
107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial
Instruments".  FSP No. FAS 107-1 and APB 28-1 expands existing disclosures
regarding fair value of financial instruments required in annual reports to
interim periods.  The disclosures required by FSP No. FAS 107-1 and APB 28-1
are effective for interim reporting periods ending after June 15, 2009.
Chandler USA has adopted FSP No. 107-1 and APB 28-1 as of June 30, 2009.  The
adoption of FSP No. FAS 107-1 and APB 28-1 did not have any impact on its
consolidated financial statements.  See Note 7 for the required disclosures.

     In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly".
FSP No. FAS 157-4 provides additional guidance for estimating fair value in
accordance with SFAS No. 157 when the volume and level of activity for the
asset or liability have significantly decreased.  FSP No. FAS 157-4 is
effective prospectively for interim and annual reporting periods ending after
June 15, 2009.  Chandler USA has adopted FSP No. FAS 157-4 as of June 30,
2009.  The adoption of FSP No. FAS 157-4 did not have a material impact on
its consolidated financial statements.

<PAGE>
                                                                     PAGE 11

     In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2,
"Recognition and Presentation of Other-Than-Temporary Impairments".  FSP No.
FAS 115-2 and FAS 124-2 amends other-than-temporary impairment guidance in
GAAP for debt securities to make the guidance more operational and to improve
the presentation and disclosure of other-than-temporary impairments on debt
and equity securities in the financial statements.  FSP No. FAS 115-2 and FAS
124-2 are effective for interim and annual reporting periods ending after
June 15, 2009.  Chandler USA has adopted FSP No. FAS 115-2 and FAS 124-2 as
of June 30, 2009.  The adoption of FSP No. FAS 115-2 and FAS 124-2 did not
have a material impact on its consolidated financial statements.  See Note 6
for the required disclosures.

     In May 2009, the FASB issued SFAS No. 165, "Subsequent Events."  SFAS
No. 165 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued.  SFAS No. 165 defines the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements and the disclosures that an
entity should make about events or transactions that occurred after the
balance sheet date.  Chandler USA has adopted SFAS No. 165 as of June 30,
2009.  The adoption of SFAS No. 165 did not have a material impact on its
consolidated financial statements.

     In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of
Financial Assets - an amendment of FASB Statement No. 140."  SFAS No. 166
amends various provisions of SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a
replacement of FASB Statement No. 125," by removing the concept of a qualifying
special-purpose entity and removes the exception from applying FIN 46(R) to
variable interest entities that are qualifying special-purpose entities;
limits the circumstances in which a transferor derecognizes a portion of
component of a financial asset; defines a participating interest; requires a
transferor to recognize and initially measure at fair value all assets
obtained and liabilities incurred as a result of a transfer accounted for as
a sale; and requires enhanced disclosure; among others.  SFAS No. 166 is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2009, with early application prohibited.
Chandler USA is currently evaluating the impact that SFAS No. 166 will have,
if any, on its consolidated financial statements.

     In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB
Interpretation No. 46(R)."  SFAS No. 167 amends FASB Interpretation No. 46
(Revised December 2003), "Consolidation of Variable Interest Entities - an
interpretation of ARB No. 51," to require an enterprise to perform an
analysis to determine whether the enterprise's variable interest or
interests give it a controlling financial interest in a variable interest
entity; to require ongoing reassessments of whether an enterprise is the
primary beneficiary of a variable interest entity; to eliminate the
quantitative approach previously required for determining the primary
beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable
interest entity when any changes in facts and circumstances occur such that
holders of the equity investment at risk, as a group, lose the power from
voting rights or similar rights of those investments to direct the
activities of the entity that most significantly impact the entity's
economic performance; and to require enhanced disclosures that will provide
users of financial statements with more transparent information about an
enterprise's involvement in a variable interest entity.  SFAS No. 167 is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2009, with early application
prohibited. Chandler USA is currently evaluating the impact that SFAS No.
167 will have, if any, on its consolidated financial statements.

<PAGE>
                                                                     PAGE 12

     In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles - a replacement of FASB Statement No. 162."  SFAS 168 replaces
SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles,"
and establishes the FASB Accounting Standards Codification ("Codification")
as the source of authoritative accounting principles recognized by the FASB
to be applied by nongovernmental entities in the preparation of financial
statements in conformity with GAAP.  Rules and interpretive releases of the
Securities and Exchange Commission ("SEC") under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants.
The FASB will no longer issue new standards in the form of Statements, FASB
Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB
will issue Accounting Standards Updates.  Accounting Standards Updates will
not be authoritative in their own right as they will only serve to update
the Codification. The issuance of SFAS No. 168 and the Codification does
not change GAAP.  SFAS No. 168 is effective for financial statements issued
for interim and annual periods ending after September 15, 2009.  Chandler
USA does not expect the adoption of SFAS No. 168 to have a material impact
on its consolidated financial statements.

NOTE 6.  INVESTMENTS AND INVESTMENT INCOME

     Net investment income and realized investment gains are summarized in
the following table.  These amounts are net of investment expenses.

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED   SIX MONTHS ENDED
                                                               JUNE 30,            JUNE 30,
                                                           ------------------  ------------------
                                                             2009      2008      2009      2008
                                                           --------  --------  --------  --------
                                                                       (In thousands)
  <S>                                                      <C>       <C>       <C>       <C>
Interest on fixed-maturity investments .................... $   821   $   762   $ 1,594   $ 1,423
Interest on short-term investments and cash equivalents ...      23       158        76       456
Investment expenses .......................................     (64)      (73)     (129)     (142)
                                                           --------  --------  --------  --------
  Investment income, net ..................................     780       847     1,541     1,737

Realized gains, net - fixed maturity investments ..........     805         -     1,189         -
Realized gains, net - equity securities ...................       -         4         -         4
                                                           --------  --------  --------  --------
  Realized investment gains, net ..........................     805         4     1,189         4
                                                           --------  --------  --------  --------
                                                           $  1,585  $    851  $  2,730  $  1,741
                                                           ========  ========  ========  ========

</TABLE>

     Investment expenses included $26,000 and $54,000 in the second quarter
and first six months of 2009, and $37,000 and $70,000 in the second quarter
and first six months of 2008, respectively, in expense to subsidize a
premium finance program for certain insureds of NAICO with an unaffiliated
premium finance company.

     The amortized cost of fixed maturities or cost of equity securities,
gross unrealized gains or losses, fair value and carrying value of
investments are as follows:

<TABLE>
<CAPTION>

                                                                  GROSS      GROSS
                                                                UNREALIZED UNREALIZED   FAIR     CARRYING
JUNE 30, 2009                                            COST     GAINS      LOSSES     VALUE      VALUE
---------------------------------------------------  ---------- ---------- ---------- ---------- ----------
FIXED MATURITIES AVAILABLE FOR SALE:                                      (In thousands)
<S>                                                  <C>        <C>        <C>        <C>        <C>
U.S. Treasury securities and obligations
   of U.S. government corporations
   and agencies ...................................  $  39,722  $     791  $    (197) $  40,316  $  40,316
Corporate obligations .............................     38,058        430       (209)    38,279     38,279
Public utilities ..................................      3,099         55          -      3,154      3,154
Obligations of states and political subdivisions ..     23,353         43       (443)    22,953     22,953
                                                     ---------- ---------- ---------- ---------- ----------
                                                     $ 104,232  $   1,319  $    (849) $ 104,702  $ 104,702
                                                     ========== ========== ========== ========== ==========
EQUITY SECURITIES:
Corporate stock ...................................  $       -  $      76  $       -  $      76  $      76
                                                     ========== ========== ========== ========== ==========
</TABLE>

<PAGE>
                                                                     PAGE 13

<TABLE>
<CAPTION>

                                                                  GROSS      GROSS
                                                                UNREALIZED UNREALIZED   FAIR     CARRYING
DECEMBER 31, 2008                                        COST     GAINS      LOSSES     VALUE      VALUE
---------------------------------------------------  ---------- ---------- ---------- ---------- ----------
FIXED MATURITIES AVAILABLE FOR SALE:                                      (In thousands)
<S>                                                  <C>        <C>        <C>        <C>        <C>
U.S. Treasury securities and obligations
   of U.S. government corporations
   and agencies ...................................  $  39,151  $   2,349  $       -  $  41,500  $  41,500
Corporate obligations .............................     29,558        313       (386)    29,485     29,485
Public utilities ..................................      3,108         21       (153)     2,976      2,976
Obligations of states and political subdivisions ..      3,197         12        (74)     3,135      3,135
                                                     ---------- ---------- ---------- ---------- ----------
                                                     $  75,014  $   2,695  $    (613) $  77,096  $  77,096
                                                     ========== ========== ========== ========== ==========
EQUITY SECURITIES:
Corporate stock ...................................  $       -  $      76  $       -  $      76  $      76
                                                     ========== ========== ========== ========== ==========
</TABLE>

     Chandler USA held investments in fixed maturities issued by General
Electric Capital Corporation with a fair value of $4.6 million or 10.1% of
shareholder's equity at both June 30, 2009 and December 31, 2008.  Other than
investments in bonds and notes of the U.S. Government and U.S. Government
agencies and authorities, Chandler USA did not hold any other fixed maturity
investments that exceeded 10% of shareholder's equity at June 20, 2009 or
December 31, 2008.

     The fair value of Chandler USA's investments with continuous gross
unrealized losses at June 30, 2009 is presented below:

<TABLE>
<CAPTION>

                                         LESS THAN 12 MONTHS      12 MONTHS OR LONGER             TOTAL
                                       -----------------------  -----------------------  ------------------------
                                                    UNREALIZED               UNREALIZED               UNREALIZED
                                       FAIR VALUE     LOSSES    FAIR VALUE     LOSSES    FAIR VALUE     LOSSES
                                       -----------  ----------  -----------  ----------  -----------  ----------
                                                                   (In thousands)
<S>                                    <C>          <C>         <C>          <C>         <C>          <C>
U.S. Treasury securities and
  obligations of U.S. government
  corporations and agencies .......... $    9,443   $    (197)  $        -   $       -   $    9,443   $    (197)
Corporate securities .................      4,248         (46)       3,690        (163)       7,938        (209)
Public utilities .....................          -           -            -           -            -           -
Obligations of states and political
  subdivisions .......................     17,701        (425)       1,182         (18)      18,883        (443)
                                       -----------  ----------  -----------  ----------  -----------  ----------
                                       $   31,392   $    (668)  $    4,872   $    (181)  $   36,264   $    (849)
                                       ===========  ==========  ===========  ==========  ===========  ==========

</TABLE>

     The unrealized losses of Chandler USA's fixed maturity investments were
primarily caused by changes in market interest rates since the date of
purchase, current conditions in the capital markets and the impact of those
conditions on market prices.  The contractual terms of those investments do
not permit the issuer to settle the securities at a price less than the
amortized cost of the investment.  Chandler USA regularly reviews its
investment portfolio for factors that may indicate that a decline in fair
value of an investment is other than temporary.  Based on an evaluation of
the issues, including, but not limited to, Chandler USA's intentions to sell
or ability to hold the investments; the length of time and amount of the
unrealized loss; and the credit ratings of the issuers of the investments,
Chandler USA does not consider these investments to be other-than-temporarily
impaired at June 30, 2009.

     Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.  The maturities of investments in fixed
maturities at June 30, 2009 are shown below:

<TABLE>
<CAPTION>

                                                      AVAILABLE FOR SALE
                                                    ------------------------
                                                     AMORTIZED
                                                        COST      FAIR VALUE
                                                    ------------  ----------
                                                         (In thousands)
<S>                                                 <C>           <C>
Due in one year or less ..........................  $     6,416   $   6,452
Due after one year through five years ............       51,494      52,526
Due after five years through ten years ...........       37,761      37,268
Due after ten years ..............................        8,561       8,456
                                                    ------------  ----------
                                                    $   104,232   $ 104,702
                                                    ============  ==========

</TABLE>

<PAGE>
                                                                     PAGE 14

     Realized gains and losses from sales of investments are shown below:

<TABLE>
<CAPTION>

                                 THREE MONTHS ENDED   SIX MONTHS ENDED
                                     JUNE 30,            JUNE 30,
                                 ------------------  ------------------
                                   2009      2008      2009      2008
                                 --------  --------  --------  --------
                                             (In thousands)
<S>                              <C>       <C>       <C>       <C>
FIXED MATURITIES:
Gross realized gains ........... $   805   $     -   $ 1,189   $     -
Gross realized losses ..........       -         -         -         -
                                 --------  --------  --------  --------
  Total net realized gains ..... $   805   $     -   $ 1,189   $     -
                                 ========  ========  ========  ========

EQUITY SECURITIES:
Gross realized gains ........... $     -   $     4   $     -   $     4
Gross realized losses ..........       -         -         -         -
                                 --------  --------  --------  --------
  Total net realized gains ..... $     -   $     4   $     -   $     4
                                 ========  ========  ========  ========

</TABLE>

     NAICO is required to deposit cash and securities with regulatory agencies
in which it is licensed as a condition of conducting operations in the state.
In addition, NAICO has deposited cash and securities into a trust account as
collateral for a reinsurance agreement in which NAICO is the assuming
reinsurer.  At June 30, 2009, the total amount of cash and securities
restricted as a result of these arrangements was $40.4 million which was an
increase of $4.9 million from December 31, 2008.  This increase was due to an
increase in the amount of reinsurance that NAICO assumed during 2009.

NOTE 7.  FAIR VALUE MEASUREMENTS

     Effective January 1, 2008, Chandler USA adopted SFAS No. 157 which
establishes a framework for measuring fair value and requires specific
disclosures regarding assets and liabilities that are measured at fair
value.  SFAS No. 157 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.  SFAS No. 157 ranks
the quality and reliability of the information used to determine fair values
into three broad categories, with the highest priority given to Level 1
inputs and the lowest priority to Level 3 inputs.  These levels are defined
by SFAS No. 157 as follows:

     Level 1 - Quoted prices (unadjusted) in active markets for identical
     assets or liabilities that the reporting entity has the ability to
     access at the measurement date.

     Level 2 - Observable inputs other than quoted prices included within
     Level 1 for the asset or liability, either directly or indirectly.  If
     an asset or liability has a specified term, a Level 2 input must be
     observable for substantially the full term of the asset or liability.

     Level 3 - Unobservable inputs for the asset or liability.

     The following table presents information about Chandler USA's assets
measured at fair value on a recurring basis as of June 30, 2009, and
indicates the fair value hierarchy of the valuation techniques utilized to
determine such values.  Substantially all of the prices of fixed
maturities, equity securities and short-term investments that are valued
as Level 1 or Level 2 in the fair value hierarchy are received from
independent pricing services utilized by our investment custodians.  No
liabilities were measured at fair value at June 30, 2009.

<TABLE>
<CAPTION>

                                                       FAIR VALUE MEASUREMENTS AT JUNE 30, 2009
                                           ----------------------------------------------------------------
                                             QUOTED PRICES    SIGNIFICANT
                                               IN ACTIVE         OTHER          SIGNIFICANT
                                              MARKETS FOR      OBSERVABLE       UNOBSERVABLE
                                           IDENTICAL ASSETS      INPUTS            INPUTS          TOTAL
 DESCRIPTION                                   (LEVEL 1)        (LEVEL 2)         (LEVEL 3)     FAIR VALUE
-----------------------------------------  ----------------  ---------------  ----------------  -----------
                                                                   (In thousands)
 <S>                                       <C>               <C>              <C>               <C>
 Fixed maturities available for sale ....  $             -   $      104,702   $             -   $  104,702
 Equity securities available for sale ...                -                -                76           76
 Short-term investments .................                -            1,330                 -        1,330
                                           ----------------  ---------------  ----------------  -----------
  Total .................................  $             -   $      106,032   $            76   $  106,108
                                           ================  ===============  ================  ===========

</TABLE>

<PAGE>
                                                                     PAGE 15

     Prices for fixed maturities available for sale and short-term investments
were provided by various custodians that hold such assets on behalf of
Chandler USA.  The custodians utilize independent pricing services to
determine prices for these assets.  Management reviews the prices provided
but does not conduct an independent validation of the prices.  Any fixed
maturities that are not held by a custodian are priced using non-binding
broker quotations.  Total assets priced from broker quotations totaled
$378,000 at June 30, 2009, or 0.4% of total Level 2 assets.

     At June 30, 2009, Chandler USA's equity securities which were measured
at fair value using Level 3 inputs consisted of common stock received in
connection with an unaffiliated entity's conversion to a for-profit
corporation.  The fair value of this stock was based upon an analytically
determined valuation from an independent rating organization.  The following
table presents additional information about assets measured at fair value
using Level 3 inputs for the three and six month periods ended June 30, 2009.

<TABLE>
<CAPTION>

                                                        THREE MONTHS      SIX MONTHS
     FAIR VALUE MEASUREMENTS USING SIGNIFICANT              ENDED            ENDED
     UNOBSERVABLE INPUTS (LEVEL 3)                      JUNE 30, 2009    JUNE 30, 2009
   -------------------------------------------------    -------------    -------------
                                                                 (In thousands)
     <S>                                                <C>              <C>
     Beginning balance .............................    $          76    $         76
       Total realized and unrealized gains (losses):
         Included in earnings ......................                -               -
         Included in other comprehensive income ....                -               -
       Purchases, issuances and settlements ........                -               -
       Transfers in and/or out of Level 3 ..........                -               -
                                                        -------------    -------------
      Ending balance ...............................    $          76    $         76
                                                        ==============    ==============

</TABLE>

NOTE 8. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

     The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS.  The estimated fair
value amounts have been determined by Chandler USA using available market
information and appropriate valuation methodologies.  However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value.  Accordingly, the estimates of fair values
presented herein are not necessarily indicative of the amounts that
Chandler USA could realize in a current market exchange.  The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

     A number of Chandler USA's significant assets (including deferred policy
acquisition costs, property and equipment, reinsurance recoverables, prepaid
reinsurance premiums and state insurance licenses) and liabilities (including
unpaid losses and loss adjustment expenses and unearned premiums) are not
considered financial instruments.  Based on the short term nature or other
relevant characteristics, Chandler USA has concluded that the carrying value
of other assets and liabilities considered financial instruments, such as
cash equivalents, premiums receivable, policyholder deposits, accrued taxes
and other payables, and premiums payable, approximates their fair value as
of June 30, 2009 and December 31, 2008.  The estimated fair values of
Chandler USA's fixed-maturity and equity security investments are disclosed
at Note 6.  At June 30, 2009, the fair value of Chandler USA's senior
debentures was estimated to be $5.6 million based on the latest reported
trade.  Chandler USA's senior debentures have not historically traded
regularly, and settlement at the reported fair value may not be possible.
The senior debentures are redeemable by Chandler USA on or after July 15,
2009 without penalty or premium, but may be purchased and cancelled by
Chandler USA at a price of less than the sum of the principal amount and
accrued interest at any time.  Chandler USA is obligated for $13.4 million
principal amount of junior subordinated debentures that mature in 2033 with
a fixed interest rate of 9.75%, and $7.2 million principal amount of junior
subordinated debentures that mature in 2034 with a floating rate of 4.10%
over LIBOR.  The interest rate at June 30, 2009 was 5.23%.  At June 30,
2009, the fair value of Chandler USA's junior subordinated debentures was
estimated to be $22.5 million.

<PAGE>
                                                                     PAGE 16

ITEM 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

     Some of the statements made in this Form 10-Q report, as well as
statements made by Chandler (U.S.A.), Inc. ("Chandler USA") in periodic
press releases and oral statements made by Chandler USA's officials
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of Chandler USA to
be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements.  Such
factors include, among other things, (i) general economic and business
conditions; (ii) interest rate changes; (iii) competition and regulatory
environment in which Chandler USA and its subsidiaries operate, including
the ability to implement price increases; (iv) claims frequency; (v) claims
severity; (vi) catastrophic events of unanticipated frequency or severity;
(vii) the number of new and renewal policy applications submitted to
National American Insurance Company ("NAICO") by its agents; (viii) the
ability of NAICO to obtain adequate reinsurance in amounts and at rates
that will not adversely affect its competitive position; (ix) the ability
of NAICO to collect reinsurance recoverables; (x) the ability of NAICO to
maintain favorable insurance company ratings; and (xi) various other
factors including ongoing litigation matters.

RESULTS OF OPERATIONS

PREMIUMS EARNED

     The following table sets forth premiums earned on a gross basis (before
reductions for premiums ceded to reinsurers) and on a net basis (after such
reductions) for each insurance program as well as each line of insurance for
the three and six month periods ended June 30, 2009 and 2008:

<TABLE>
<CAPTION>

                                 GROSS PREMIUMS EARNED   NET PREMIUMS EARNED
                                 ---------------------  ---------------------
  THREE MONTHS ENDED JUNE 30,       2009       2008        2009       2008
  ------------------------------ ---------- ----------  ---------- ----------
  INSURANCE PROGRAMS:                           (IN THOUSANDS)
  <S>                            <C>        <C>         <C>        <C>
  Standard lines ............... $  21,822  $  23,052   $  13,434  $  14,490
  Political subdivisions .......       977      1,065         637        698
  Other ........................       145         63         138         55
                                 ---------- ----------  ---------- ----------
  TOTAL ........................ $  22,944  $  24,180   $  14,209  $  15,243
                                 ========== ==========  ========== ==========

  LINES OF INSURANCE:
  Automobile liability ......... $   6,382  $   7,366   $   4,403  $   4,750
  Workers compensation .........     8,058      7,267       5,152      5,130
  Other liability ..............     6,411      7,841       3,258      3,364
  Automobile physical damage ...     1,986      1,823       1,333      1,603
  Other ........................       107       (117)         63        396
                                 ---------- ----------  ---------- ----------
  TOTAL ........................ $  22,944  $  24,180   $  14,209  $  15,243
                                 ========== ==========  ========== ==========

</TABLE>

<TABLE>
<CAPTION>

                                 GROSS PREMIUMS EARNED   NET PREMIUMS EARNED
                                 ---------------------  ---------------------
  SIX MONTHS ENDED JUNE 30,         2009       2008        2009       2008
  ------------------------------ ---------- ----------  ---------- ----------
  INSURANCE PROGRAMS:                           (IN THOUSANDS)
  <S>                            <C>        <C>         <C>        <C>
  Standard lines ............... $  44,314  $  49,259   $  27,605  $  31,226
  Political subdivisions .......     1,963      2,131       1,281      1,398
  Other ........................       206        152         192        129
                                 ---------- ----------  ---------- ----------
  TOTAL ........................ $  46,483  $  51,542   $  29,078  $  32,753
                                 ========== ==========  ========== ==========

  LINES OF INSURANCE:
  Automobile liability ......... $  13,281  $  17,087   $   9,153  $  11,816
  Workers compensation .........    15,901     15,517      10,283     10,061
  Other liability ..............    12,811     15,299       6,621      8,397
  Automobile physical damage ...     4,349      3,656       2,936      2,489
  Other ........................       141        (17)         85        (10)
                                 ---------- ----------  ---------- ----------
  TOTAL ........................ $  46,483  $  51,542   $  29,078  $  32,753
                                 ========== ==========  ========== ==========

</TABLE>

<PAGE>
                                                                     PAGE 17

     Gross premiums earned decreased $1.2 million or 5% and $5.1 million or
10% in the second quarter and first six months of 2009, respectively,
compared to the 2008 periods.  Net premiums earned decreased $1.0 million or
7% and $3.7 million or 11% for the second quarter and first six months of
2009, respectively.

     Gross premiums earned in the standard lines program decreased $1.2
million or 5% and $4.9 million or 10% in the second quarter and first six
months of 2009, respectively, compared to the 2008 periods.  Gross premiums
earned from trucking accounts in this program decreased $863,000 and $3.4
million in the second quarter and first six months of 2009, respectively.
Gross premiums earned in this program for other liability decreased $1.4
million and $2.4 million in the second quarter and first six months of 2009,
respectively, and gross premiums earned for automobile liability decreased
$942,000 and $3.7 million in the second quarter and first six months of 2009.
These decreases were partially offset by increases in workers compensation
and automobile physical damage premiums.  Net premiums earned decreased $1.1
million or 7% and $3.6 million or 12% in the second quarter and first six
months of 2009, respectively.

     Gross premiums earned in the political subdivisions program decreased
$88,000 or 8% and $168,000 or 8% in the second quarter and first six months
of 2009, respectively, compared to the 2008 periods.  The decrease in gross
premiums earned was due primarily to increased competition related to
Oklahoma school districts.  Net premiums earned in this program decreased
$61,000 or 9% and $117,000 or 8% in the second quarter and first six months
of 2009, respectively.

     Effective July 1, 2009, the automobile liability, automobile physical
damage and other liability lines of insurance in the political subdivision
program that were previously written by NAICO will be written by an
unaffiliated insurance company through an arrangement with CIMI.  Under
this arrangement, CIMI will receive commission income for the business it
produces.  CIMI is responsible for the payment of commissions to the
producing agents, and is also responsible for providing underwriting and
loss control services for this business.  NAICO handles all claims for this
business under a separate claims handling agreement with the unaffiliated
insurance company.  NAICO will continue to write workers compensation
coverages for this program.  Because of this change, NAICO expects its
future premiums earned for this program to decrease significantly.

NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS

     At June 30, 2009, Chandler USA's investment portfolio consisted
primarily of fixed income U.S. Treasury and government agency bonds,
high-quality corporate and tax exempt bonds and certificates of deposit
insured by the FDIC, with approximately 6% invested in cash and money
market instruments.  Income generated from this portfolio is largely
dependent upon prevailing levels of interest rates.  Chandler USA's
portfolio contains no non-investment grade bonds or real estate investments.
Chandler USA also receives interest income from related parties on
intercompany loans

     Net investment income, excluding interest income from related parties
decreased $67,000 or 8% and $196,000 or 11% in the second quarter and first
six months of 2009, respectively, due primarily to lower interest rates.
Cash and invested assets were $112.9 million at June 30, 2009 compared to
$103.7 million at December 31, 2008 and $101.9 million at June 30, 2008.
Net interest income from related parties decreased $49,000 or 31% and
$131,000 or 38% in the second quarter and first six months of 2009,
respectively, due to lower interest rates.

     Net realized investment gains were $805,000 and $1.2 million during the
second quarter and first six months of 2009, respectively.  The realized
gains resulted from sales of fixed maturities available for sale in the
amount of $20.6 million.  Net realized investment gains were $4,000 during
the second quarter and first six months of 2008.

OTHER INCOME

     Other income was $332,000 and $775,000 in the second quarter and first
six months of 2009, respectively, compared to $416,000 and $828,000 in the
second quarter and first six months of 2008.  The decrease in the second
quarter and first six months of 2009 was due primarily to a decrease in
commission income related to business produced by CIMI for insurance
companies other than NAICO.


<PAGE>
                                                                     PAGE 18

LOSSES AND LOSS ADJUSTMENT EXPENSES

     Chandler USA estimates losses and loss adjustment expenses based on
historical experience and payment and reporting patterns for the type of
risk involved.  These estimates are based on data available at the time of
the estimate and are periodically reviewed by independent professional
actuaries.  Although such estimates are management's best estimates of the
expected values, the ultimate liability for unpaid claims may vary from
these values.

     The percentage of losses and loss adjustment expenses to net premiums
earned ("loss ratio") was 66.9% and 61.1% for the second quarter and first
six months of 2009, compared to 55.0% and 59.0% in the corresponding 2008
periods.  During the second quarter of 2009, NAICO experienced an increase
in losses incurred related to prior accident years totaling $315,000 which
increased the loss ratio by 2.2 percentage points.  Loss reserve development
for the first six months of 2009 was redundant by $15,000.  NAICO also
experienced an increase in losses incurred for the current accident year
which increased the loss ratio for this accident year from 57.8% at March
31, 2009 to 61.1% at June 30, 2009.  In the second quarter of 2008, losses
and loss adjustment expenses incurred related to prior accident years were
redundant by $696,000 and decreased the loss ratio by 4.6 percentage points.
In the first six months of 2008, loss development was redundant by $515,000
which decreased the loss ratio by 1.6 percentage points.

     Weather-related losses from wind and hail totaled $62,000 and $79,000
in the second quarter and first six months of 2009 and increased the
respective loss ratios by 0.4 and 0.3 percentage points.  Weather-related
losses totaled $303,000 and $305,000 in the second quarter and first six
months of 2008, and increased the respective 2008 loss ratios by 2.0 and
0.9 percentage points.

POLICY ACQUISITION COSTS

     Policy acquisition costs consist of costs associated with the
acquisition of new and renewal business and generally include direct costs
such as premium taxes, commissions to agents and ceding companies and
premium-related assessments and indirect costs such as salaries and expenses
of personnel who perform and support underwriting activities. NAICO also
receives ceding commissions from the reinsurers who assume premiums from
NAICO under certain reinsurance contracts and the ceding commissions are
accounted for as a reduction of policy acquisition costs.  Direct policy
acquisition costs and ceding commissions are deferred and amortized over the
terms of the policies.  When the sum of anticipated losses, loss adjustment
expenses and unamortized policy acquisition costs exceeds the related
unearned premiums, including anticipated investment income, a provision for
the indicated deficiency is recorded.

     The following table sets forth Chandler USA's policy acquisition costs
for each of the three and six month periods ended June 30, 2009 and 2008:

<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED   SIX MONTHS ENDED
                                                  JUNE 30,            JUNE 30,
                                              ------------------  ------------------
                                                2009      2008      2009      2008
                                              --------  --------  --------  --------
                                                          (In thousands)
<S>                                           <C>       <C>       <C>       <C>
Commissions expense ......................... $ 2,935   $ 2,953   $ 6,618   $ 7,278
Other premium related assessments ...........     272       239       539       546
Premium taxes ...............................     479       423       934     1,000
Excise taxes ................................      54        54       121       136
Other expense ...............................     121       157       247       306
                                              --------  --------  --------  --------

Total direct expenses .......................   3,861     3,826     8,459     9,266

Indirect underwriting expenses ..............   1,460     1,608     2,890     3,183
Commissions received from reinsurers ........  (2,511)   (2,391)   (5,534)   (6,001)
Adjustment for deferred acquisition costs ...      68        81       (21)      (81)
                                              --------  --------  --------  --------
Net policy acquisition costs ................ $ 2,878   $ 3,124   $ 5,794   $ 6,367
                                              ========  ========  ========  ========

</TABLE>

     Total gross direct and indirect expenses as a percentage of direct
written and assumed premiums were 25.3% and 24.7% for the second quarter and
first six months of 2009, compared to 26.9% and 24.7% in the corresponding
year ago periods.  Commissions expense as a percentage of gross written and
assumed premiums was 14.0% and 14.4% in the second quarter and the first six
months of 2009 compared to 14.6% and 14.4% in the corresponding 2008 periods.

<PAGE>
                                                                     PAGE 19

     Indirect underwriting expenses decreased $148,000 and $293,000 in the
second quarter and first six months of 2009, respectively, and were 6.9% and
6.3% of total direct written and assumed premiums in the second quarter and
first six months of 2009, respectively, compared to 8.0% and 6.3% in the
corresponding 2008 periods.  Indirect expenses include general overhead and
administrative costs associated with the acquisition of new and renewal
business, some of which is relatively fixed in nature, thus, the percentage
of such expenses to direct written and assumed premiums will vary depending
on Chandler USA's overall premium volume.  Commissions received from
reinsurers as a percent of ceded reinsurance premiums were 30.5% and 31.7%
in the second quarter and first six months of 2009, respectively, compared
to 31.9% and 32.6% in the corresponding 2008 periods.

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses decreased $400,000 and $455,000 in
the second quarter and first six months of 2009, respectively, and were
11.7% and 12.3% of gross premiums earned and other income in the second
quarter and first six months of 2009, respectively, compared to 12.7% and
12.0% for the corresponding 2008 periods.  General and administrative
expenses have historically not varied in direct proportion to Chandler
USA's revenues. A portion of such expenses is allocated to policy
acquisition costs (indirect underwriting expenses) and loss and loss
adjustment expenses based on various factors including employee counts,
salaries, occupancy and specific identification.  Because certain types of
expenses are fixed in nature, the percentage of such expenses to revenues
will vary depending on Chandler USA's overall premium volume.

INTEREST EXPENSE

     Interest expense decreased $32,000 and $86,000 in the second quarter
and first six months of 2009, respectively, compared to the 2008 periods.
Substantially all of Chandler USA's interest expense is related to its
outstanding senior debentures and junior subordinated debentures.  The
decrease in the 2009 periods was due to lower interest rates during 2009,
as a portion of Chandler USA's junior subordinated debentures were issued
with a floating interest rate.

LIQUIDITY AND CAPITAL RESOURCES

     In the first six months of 2009, Chandler USA provided $10.9 million in
cash from operations.  Unpaid losses and loss adjustment expenses increased
$8.7 million, premiums receivable decreased $4.2 million and policyholder
deposits increased $2.5 million during the first six months of 2009.  These
were partially offset by an increase in reinsurance recoverable on unpaid
losses of $5.8 million.  In the first six months of 2008, Chandler USA
provided $6.1 million in cash from operations.  Unpaid losses and loss
adjustment expenses increased $7.6 million during the first six months of
2008, but this was partially offset by an increase in reinsurance recoverable
on unpaid losses of $4.3 million.

     NAICO is required to deposit cash and securities with regulatory
agencies in which it is licensed as a condition of conducting operations in
the state.  In addition, NAICO has deposited cash and securities into a
trust account as collateral for a reinsurance agreement in which NAICO is
the assuming reinsurer.  At June 30, 2009, the total amount of cash and
securities restricted as a result of these arrangements was $40.4 million
which was an increase of $4.9 million from December 31, 2008.  This increase
was due to an increase in the amount of reinsurance that NAICO assumed during
2009.

     At June 30, 2009, Chandler USA's parent company, Chandler Insurance
Company, Ltd., owed approximately $12.6 million to Chandler USA versus $11.9
million at December 31, 2008 under an Intercompany Credit Agreement (the
"Credit Agreement") covering intercompany loans between the parties.  The
Credit Agreement requires interest to be paid at the prime interest rate
published in the Wall Street Journal each month, and balances owed by either
party are payable at any time upon demand.

     During March 2001, Chandler USA entered into a $3.8 million sale and
leaseback transaction for certain owned equipment for three years.  During
March 2004, the lease was extended for three years and during March 2007,
the lease was extended for an additional three years with monthly rental
installments equal to the sum of (i) $13,834 plus (ii) interest on the unpaid
lease balance at 1% over JP Morgan Chase Bank prime which was 4.25% at June
30, 2009.  Chandler USA has the option to repurchase the equipment at the
end of the lease for approximately $1.9 million (the "Balloon Payment"), or
may elect to have the lessor sell the equipment.  If the election to sell
the equipment is made, Chandler USA would retain any proceeds exceeding the
Balloon Payment.  If the proceeds were less than the Balloon Payment,
Chandler USA would be required to pay the difference between the proceeds
and the Balloon Payment, not to exceed approximately $1.5 million.

<PAGE>
                                                                     PAGE 20

     Chandler USA is a holding company receiving cash principally through
borrowings, subsidiary dividends and other payments, subject to various
regulatory restrictions.  The capacity of insurance companies to write
insurance is based on maintaining liquidity and capital resources sufficient
to pay claims and expenses as they become due.  The primary sources of
liquidity for Chandler USA's subsidiaries are funds generated from insurance
premiums, investment income, capital contributions from Chandler USA and
proceeds from sales and maturities of portfolio investments.  The principal
expenditures are payment of losses and loss adjustment expenses, insurance
operating expenses and commissions.

     A significant portion of Chandler USA's consolidated assets represents
assets of NAICO that may not be immediately transferable to Chandler USA in
the form of shareholder dividends, loans, advances or other payments.

     Statutes and regulations governing NAICO and other insurance companies
domiciled in Oklahoma regulate the payment of shareholder dividends and
other payments by NAICO to Chandler USA.  Under applicable Oklahoma statutes
and regulations, NAICO is permitted to pay shareholder dividends only out of
statutory earned surplus.  To the extent NAICO has statutory earned surplus,
NAICO may pay shareholder dividends only to the extent that such dividends
are not defined as extraordinary dividends or distributions.  If the
dividends are, under applicable statutes and regulations, extraordinary
dividends or distributions, regulatory approval must be obtained.  Under
the applicable Oklahoma statute, and subject to the availability of
statutory earned surplus, the maximum shareholder dividend that may be
declared (or cash or property distribution that may be made) by NAICO in
any one calendar year without regulatory approval is the greater of (i)
NAICO's statutory net income, excluding realized capital gains, for the
preceding calendar year; or (ii) 10% of NAICO's statutory policyholders'
surplus as of the preceding calendar year end, not to exceed NAICO's
statutory earned surplus.

     As of December 31, 2008, NAICO had statutory earned surplus of $13.4
million.  Applying the Oklahoma statutory limits described above, the
maximum shareholder dividend NAICO may pay in 2009 without the approval
of the Oklahoma Department of Insurance is $5.1 million.  NAICO paid cash
shareholder dividends of $500,000 to Chandler USA in March 2009 and
$900,000 in June 2009.  NAICO paid a cash shareholder dividend of $1.0
million to Chandler USA in June 2008.

     In addition to the statutory limits described above, the amount of
shareholder dividends and other payments to affiliates can be further limited
by contractual or regulatory restrictions or other agreements with regulatory
authorities restricting dividends and other payments, including regulatory
restrictions that are imposed as a matter of administrative policy.  If
insurance regulators determine that payment of a shareholder dividend or
other payments to an affiliate (such as payments under a tax sharing
agreement, payments for employee or other services, or payments pursuant to
a surplus note) would be hazardous to such insurance company's policyholders
or creditors, the regulators may block such payments that would otherwise be
permitted without prior approval.

     Historically, NAICO has played a significant role in the servicing of
debt and other obligations of Chandler USA through the payment of
shareholder dividends.  These obligations include $7.0 million of 8.75%
senior debentures due in 2014, $13.4 million of 9.75% junior subordinated
debentures due in 2033, $7.2 million of floating rate junior subordinated
debentures due in 2034 and the obligations under the sale and leaseback
transaction discussed previously.  To the extent that the restrictions
discussed previously limit NAICO's ability to pay shareholder dividends or
other payments to Chandler USA, Chandler USA's ability to satisfy the debt
obligations may also be limited.


<PAGE>
                                                                     PAGE 21

LITIGATION

     In October 1999, NAICO provided surety bonds for Gulsby Engineering,
Inc. ("Gulsby") in connection with contracts between Gulf Liquids New
River Project, LLC ("Gulf Liquids") and Gulsby for the construction of
two gas processing plants in Louisiana.  During 2001, Gulsby became unable
to pay various vendors resulting in payments to vendors by NAICO totaling
$20,182,499.  In August 2001, NAICO filed suit in federal court in
Louisiana alleging that Gulf Liquids had breached its obligations under
the bonds by materially altering certain contracts and that as a result,
NAICO was exonerated on the bonds and should recover the amounts paid to
vendors.  In the fall of 2001, Gulsby and Bay Limited, another contractor
with whom Gulsby had entered into a joint venture for the construction of
other gas processing plants for Gulf Liquids, filed lawsuits relating to
those plants in Houston, Texas.  Gulf Liquids filed original actions and
counterclaims.  NAICO intervened in the Texas lawsuits and, in addition,
sued Williams Energy Marketing and Trading (which later became Williams
Power Company, Inc.) ("Williams") alleging fraud, breach of contract,
tortious interference with contractual relations, conspiracy and alter
ego.  These claims were asserted against both Gulf Liquids and Williams.
Gulf Liquids asserted counterclaims alleging breach of contract against
NAICO and requesting contractual and statutory damages ranging from $40
million to $80 million.  The cases were consolidated for trial in the
215th Judicial District Court in Harris County, Texas.  On August 1, 2006,
the jury trial concluded in Harris County, Texas, related to the construction
of two gas processing plants in Louisiana.  The amounts the jury found owing
to NAICO included approximately $20.2 million in actual damages and $70.0
million in punitive damages.  See Note 4 of Notes to Consolidated Financial
Statements for a discussion of this jury verdict.

     On January 28, 2008, the court entered a final judgment denying Gulf
Liquid's claims against NAICO and Gulsby, denying all of NAICO's claims
against Gulf Liquids and Williams, and entering judgment for Gulsby against
Gulf Liquids for $15,651,927 plus interest at 7.25% compounded annually from
January 28, 2008 until paid.  The court also ordered Gulf Liquids to pay
Gulsby's taxable court costs, estimated at $100,000.  Gulf Liquids has
appealed the judgment entered in favor of Gulsby and the denial of its
claims against NAICO and Gulsby.  NAICO has appealed the trial court's denial
of its claims against Gulf Liquids and Williams and seeks entry of judgment
upon the jury verdicts for the amounts the jury found should be awarded to
NAICO.  Gulsby has also appealed the trial court's final judgment, contending
that judgment should be entered in its favor against Gulf Liquids and
Williams in accordance with the jury verdicts.  The recoverable amounts
deducted from Chandler USA's net liability for losses and loss adjustment
expenses related to this litigation were approximately $10.1 million at
June 30, 2009 and December 31, 2008.

ITEM 4T.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

     As of the end of the period covered by this report and pursuant to Rule
13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act"), Chandler
USA's management, including the Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness and design of Chandler
USA's disclosure controls and procedures (as that term is defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act).  Based upon that evaluation,
Chandler USA's Chief Executive Officer and Chief Financial Officer
concluded, as of the end of the period covered by this report, that
Chandler USA's disclosure controls and procedures were effective in
recording, processing, summarizing and reporting information required to be
disclosed by Chandler USA, within the time periods specified in the
Securities and Exchange Commission's rules and forms.

CHANGES IN INTERNAL CONTROLS

     In addition and as of the end of the period covered by this report,
there have been no changes in internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the
quarter to which this report relates that have materially affected or are
reasonably likely to materially affect, the internal control over financial
reporting.

<PAGE>
                                                                     PAGE 22


PART II.                        OTHER INFORMATION
                                -----------------

Item 1.    LEGAL PROCEEDINGS
           -----------------
           Chandler USA and its subsidiaries are not parties to any material
           litigation other than as is routinely encountered in their
           respective business activities.  While the outcome of these
           matters cannot be predicted with certainty, Chandler USA does not
           expect these matters to have a material adverse effect on its
           financial condition, results of operations or cash flows.  See
           Note 4 of Notes to Interim Consolidated Financial Statements for
           a discussion of a favorable jury verdict in civil litigation
           regarding certain surety bond claims.

Item 1A.   RISK FACTORS
           ------------
           There have been no material changes from risk factors previously
           disclosed in our Annual Report on Form 10-K for the year ended
           December 31, 2008.

Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
           -----------------------------------------------------------
           None.

Item 3.    DEFAULTS UPON SENIOR SECURITIES
           -------------------------------
           None.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
           ---------------------------------------------------
           None.

Item 5.    OTHER INFORMATION
           -----------------
           None.

Item 6.    EXHIBITS
           --------
           31.1  Rule 13a-14(a)/15d-14(a) Certifications.
           32.1  Section 1350 Certifications.

<PAGE>
                                                                     PAGE 23

                                   SIGNATURES
                                   ----------


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


   Date:  August 12, 2008          CHANDLER (U.S.A.), INC.

                                   By: /s/ W. Brent LaGere
                                       --------------------------------------
                                       W. Brent LaGere
                                       Chairman of the Board and
                                       Chief Executive Officer
                                       (Principal Executive Officer)



                                   By: /s/ Mark C. Hart
                                       --------------------------------------
                                       Mark C. Hart
                                       Senior Vice President - Finance, Chief
                                       Financial Officer and Treasurer
                                       (Principal Accounting Officer)